3-Person Startup Gumroad Raises $7 Million Series A from Kleiner Perkins

GumroadGumroad only has 3 full-time employees. Last month it only had one, founder Sahil Lavingia (second from left).

Sahil Lavingia is only 19, but he hasn't had much trouble raising money for his startup, Gumroad.

After about four days of pounding the pavement and hacking together a working prototype, the former Pinterest employee raised $1.1 million. It was announced in February.

Now, after spending less than 24 hours formally meeting with investors, Gumroad is announcing a $7 million Series A round led by Kleiner Perkins Caufield & Byers. Mike Abbott is joining the board. CrunchFund is in the round too, as well as Raymond Tonsing. All of Gumroad's seed investors re-upped.

Gumroad lets people sell as easily as they share. It's like PayPal for social media.

Lavingia believes there's no need to have an entire e-commerce store or use a site like Amazon to reach a network of shoppers. Users have their own networks via Facebook and Twitter, and they can share a "buy" link with their social connections without giving up a percentage of the sales. When the link is clicked, the transaction begins.

Watch highlights from Lavingia's appearance at Startup 2012.

Lavingia wasn't seeking more funding. Last week at our Startup 2012 conference I asked Lavingia about unsolicited term sheets and he laughed -- he's definitely been hit with a few.

But Lavingia wanted to work with Kleiner Perkins because he spent a lot of time with the firm and found it very helpful and hands on.

"I really want to build a big company." he tells us. "The chances of messing up are frequent, and I'd like to work with people who can help me limit those mess-ups."

Abbott, in particular, was a big draw for Lavingia. "I talk to him everyday. I hack with him. I code with him. We're even a couple on [mobile social network] Pair," says Lavingia.

Lavingia first met Abbott shortly after raising his seed round. "I met Mike for a coffee at Starbucks and he was really helpful," says Lavingia. "He has built and scaled engineering teams before, and that's what I need help with. He wasn't super pushy. He just wanted to be kept in the loop."

While Lavingia wouldn't tell us what valuation he raised the $7 million at, he tells us "all of the investors are happy with it."

For a three-person startup, $1 million sounds like a lot of money; $7 million sounds excessive. We asked him on stage at our conference how he decided how much money to raise.

"$1 million sounded cool," Lavingia joked. "It's a round number. Some startups are raising $500,000 and some are raising $1.5 million, so I figured I'd raise $1 million." All three founders on stage agreed that the amount of a seed round is arbitrary.

On stage, without knowing he'd be announcing funding today, we asked: "Would you pick an arbitrary amount for your next round?"

He replied, "Honestly, you're going to raise as much as you can because VCs don't say, 'We want to raise $4 million…[they say] we want to own X percent of your company.' Most seed stage startups will raise and give up around 15-20% dilution."

Gumroad launched in February and Lavingia's only goal was to get traction. Luckily, he got some quickly and he says at any hour of the day, people are buying and selling things on Gumroad.

"My goal with the launch was to have maybe a few hundred, maybe a few thousand dollars worth of sales, but it's a lot higher than that. It's much higher."

Lavingia says he'll use the $8.1 million he's raised to grow the team to 10 or 12 people by the end of 2012. The financing will also enable Gumroad to move out of the teenager's home and into a real office.